The high cost of motor insurance is becoming a major obstacle to car ownership writes Geraldine Herbert so why are premiums on the rise so significantly
- Losses made by the insurance companies – The insurance industry argues that they have been losing money on motor cover in Ireland for past number of years so the current increases are an attempt to get premiums back to a profitable rate. However, this is at best only a partial explanation, the under-pricing in the past was due to a senseless price war to win market share.
- The lack of regulatory compliance
The lack of regulatory compliance in the past has also left a legacy for the insurance industry. Since 2010, motorists have been paying a levy on motor, home and commercial insurance to pay for the collapse of Quinn Insurance. The failure of Quinn, which lost over €900m in 2009 and a further €160m in 2010, much of it due to losses in the UK market, was followed four years later by that of Malta based Setanta Insurance, which collapsed in April 2014 with an estimated €90m shortfall. More recently, 14,000 policy holders were left without insurance when the Gibraltar-based Enterprises Insurance collapsed. - Fraud
It also is estimated that fraud adds €50 to the cost of every motor policy, this ranges from the criminal staging of “accidents” to fraudulent production of bogus “no-claims certificates” by drivers changing insurers. Several high profile insurance claims cases were thrown out after evidence emerged from Facebook. Late last year a couple who staged a car crash while pretending to be strangers was discovered when the insurance company saw that they appeared in each other’s Facebook profile pictures. - An expensive compensation system
An expensive compensation system is also a key factor driving up the cost of insurance premiums. A considerable proportion of compensation payouts in Ireland are made for whiplash and on average the claimant will typically receive €15,000, in the UK; the corresponding figure is €5,000. - The Injuries Board
The Injuries Board was established 12 years ago to speed up claim process for personal injuries and was designed as a lawyer-free zone, with legal fees not paid when an award is made. However currently 90% of claimants to the Injuries Board are now represented by lawyers and more cases are unresolved in the Injuries Board. In fact less than 10,000 injuries cases are decided in the Injuries Board and the courts while another 22,530 claims are settled by insurers privately. Such a high proportion of claimants circumventing the process raises questions about whether insurance companies are too eager to settle rather than challenge claims and underlines the need to increase the powers of the Injuries Board to counter this trend. - Uninsured drivers – It is estimated that around 60m a year is being paid out by the insurance industry to cover claims on accidents involving uninsured drivers and adds around €50 to every motor policy. In addition a third of Irish drivers involved in fatal collisions have no insurance according the RSA.
- Changes to the court system – New regulatory rules and changes to the courts system raised the maximum circuit court personal injuries award rose from €38,000 to €60,000.
- Investment losses – Insurance companies are not making returns on their investments to cover losses.
Geraldine Herbert
16th August, 2016
